7.4 Tax Returns

What is the difference between a tax credit and a tax deduction?

• A tax credit represents money owed to you, while a tax deduction represents money you owe.

• A tax credit reduces the amount of money you must pay, while a tax deduction reduces your taxable income.

• A tax credit is owed money that collects interest, while a tax deduction is money that you do not have to pay.

• A tax credit occurs if you underpaid during the year, and a tax deduction occurs if you overpaid.

Tax returns filed manually have a 20% chance of containing errors, while tax returns filed electronically have a 0.05% chance of containing the same. If 2.7 million tax returns are filed each way, how many more erroneous manually filed returns will there be than erroneous electronically filed returns?

• 270,675

• 538,650

• 541,350

• 269,325

Sandy and Alex are married, with no dependents. They wish to file a joint tax return. Both of them work, but their combined salaries only put them at a slightly above-average income. They would also like to deduct interest paid on their student loans. Recommend an appropriate 1040 form for Sandy and Alex to fill out. (Answer: 1040 A)

• 1040

• 1040-EZ

• 1040-2

• 1040-A

Brian is calculating his tax deductions. He finds that he can deduct $1,225 as a result of money given to charity, $4,391 from interest paid on his mortgage, and $2,821 from what he paid in state and local taxes. What is Brian’s total deduction?

• $8,437

• $8,383

• $6,414

• $5,700

Mr. and Mrs. Nedage are filing a joint tax return. While listing their deductions, they find that they can deduct $2,150 from medical bills, $826 from state taxes, $3,133 from charitable donations, and $1,331 from interest on their mortgage. The standard deduction for married couples filing jointly is $8,350. How does the standard deduction compare to the Nedages’ deductions?

• The Nedages’ deductions are $1,740 better than the standard deduction.

• The Nedages’ deductions are $7,440 better than the standard deduction.

• The standard deduction is $910 better than the Nedages’ deductions.

• The standard deduction is $9,260 better than the Nedages’ deductions.

Nastasha has a gross income of $66,429. She can make adjustments of $14,490 for business losses, $3,584 for business expenses, and $4,813 for contributions to her retirement plan. What is Nastasha’s adjusted gross income?

• $109,971

• $22,887

• $72,522

• $43,542

Robert and Anne, a married couple filing jointly, have an adjusted gross income of $68,676. They claim two exemptions, and can deduct $3,752 for charitable donations, $3,375 for interest on their mortgage, and $959 from city income tax. If the standard deduction for a married couple filing jointly is $8,350 and exemptions are worth $3,650 apiece, what is their total taxable income?

• $53,290

• $53,026

• $44,940

• $61,640

Bianca and Dave are a married couple filing a joint tax return. They have a combined gross income of $81,031 and claim four exemptions. They can make an adjustment of $2,914 for business expenses, an adjustment of $1,939 for business losses, a deduction of $4,140 for medical expenses, an adjustment of $4,825 for contributions to their retirement fund, and a deduction of $2,420 for charitable donations. If exemptions are worth $3,650 apiece and the standard deduction for a joint return is $8,350, what is their total taxable income?

• $50,193

• $41,843

• $48,403

• $52,793

Who should fill out the W-2 form?

• the taxpayer’s employer

• the taxpayer

• a qualified tax professional

• the IRS

If 20% of all manually filed returns contain errors, and 0.05% of all electronically filed returns contain errors, how much more likely is a manual filer to make an error than an electronic filer?

• 40,000 times more likely

• 4,000 times more likely

• 400 times more likely

• 40 times more likely